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- Equities: Global equities notched another winning week as investors take cue from falling treasury yields and moderating inflation
- Credit: High quality, short duration credit remains most attractive. Long-end of the duration spectrum remains most at risk given US debt sustainability concerns, while the short duration would enjoy tailwinds from Fed pause
- FX: Fed and ECB narrowed policy gap; EUR/USD continues to hover near the 1.10 resistance level
- Rates: UST rally running out of steam; 2Y yields are fair but decline in long-end rates may be overdone
- The Week Ahead: Keep a lookout for US Change in Initial Jobless Claims; Japan Industrial Production Number
Global equities rose on rate pause bets. Global equities reported gains for the week ending 24 Nov on the back of moderating US Treasury yields. Global equities were up 0.9% for the week, with both Developed Markets and Emerging Markets rising 1.0% and 0.9% respectively.
US equities notched another week in green as treasury yields hit multi-month lows on lowered inflation expectations. The major averages notched their 4th consecutive week of gains; S&P 500, Dow Jones and NASDAQ were up 1.0%, 1.3% and 0.9% respectively.
Europe equities were mixed during the week as macro data showed a decline in business activity (PMI remained contractionary in November and employment fell for the first time in three years); the FTSE 100 and DAX registered -0.2% and +0.7% respectively. The China market was also ambiguous the past week with the SHCOMP falling 0.4% whilst the HSCEI and Hang Seng Index gained 1.1% and 0.6% respectively as investors weighed the impact of further stimulus measures for private property developers.
Topic in focus: Muted earnings surprise for STOXX 600. As we approach the end of the current earnings season, with c.93% (as of 24 November) of the companies on STOXX 600, the complex economic landscape has impacted a broad range of industries. With only 53.3% of the index reporting positive earnings surprise, 10.7% inline and 36.1% reporting negative earnings surprise, this is the worst earnings season since pandemic lows.
Out of the companies that have reported, Technology and Financials shared the top spot with 65% reporting earnings upside, followed by Energy at 60%. This stellar earnings momentum broadly ties to the outperformance of the two sectors. Europe Financials rallied c.18% and Europe Technology stocks rallied c.27% this year against c.12% gain for STOXX 600.
From a sectoral perspective, we continue to advocate maintaining exposure in Europe Technology, especially in the semiconductor space (i.e., Infineon and ASML). These industry leaders boast strong IP and near monopolistic positioning within the semiconductor landscape. Furthermore, we believe the semiconductor space is poised to benefit from the Artificial Intelligence (AI) boom due to the pivotal role that chipsets, as integral components, plays in propelling the advancements of AI.
Figure 1: Europe current quarter earnings surprise
Source: Bloomberg, DBS
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